Call to 'take politics out of pensions'

An independent commission should be set up to ensure pension reforms work in savers' long-term interests, says NAPF

An independent body should be set up to ensure the long-term success of the retirement savings revolution and "take the politics out of pensions", the National Association of Pension Funds (NAPF) has urged.

As pension schemes gear up to put the "biggest set of changes to pensions in a century" into action, an independent retirement savings commission should be established to make sure that the package of reforms works in savers' long-term interests, the NAPF said.

The commission could work in a similar way to the Office for Budget Responsibility (OBR) in providing an independent check on government initiatives, the NAPF, which represents schemes providing pensions for more than 17 million people, suggests.

It could provide a "sense check" of all aspects of the pension sector and look ahead to make sure that the pace of reform does not have problematic unintended consequences, the NAPF said.

The body warned that "profound" changes which will effectively do away with the requirement to buy a retirement income called an annuity will "require several years to work through in full", as savers re-think their options and demand new flexible retirement products.

Yesterday, Prime Minister David Cameron promised people "security" and "personal responsibility" in their retirement as the Government unveiled its latest pension reforms.

A radical shake-up is set to take place next spring, which should give people aged over 55 significantly more freedom over how much of their pension pot they want to cash in, what they want to spend it on and when they want to take it.

The moves have received a broad welcome but some experts have raised concerns that the whirlwind of reform means that some firms will not be fully geared up in time to help people make the most of the changes.

'Retirement car crash'

While some analysts have said it is time people were trusted with their own money, others have raised concerns over a potential "retirement income car crash".

When the proposals were first set out in the Budget, Pensions Minister Steve Webb (pictured above) said he was "relaxed" about the possibility of people blowing their savings on a Lamborghini sports car.

Launching its "pre-election manifesto" at its annual conference in Liverpool, the NAPF said that while there is "huge potential in the pensions system", it is "potential that needs careful monitoring and nurturing, with a clear focus on the long term".

It continued: "It can be difficult to take the politics out of pensions; in many ways pensions - the redistribution of wealth between generations - are politics.

"But we must try, or risk undoing the potential of the current system through incremental improvements which turn out to have unintended consequences."

The proposed commission would set targets for pension outcomes, measure progress towards them, make recommendations for change and provide impact assessments of government proposals for change, the NAPF said.

It should, for example, manage a "joined-up assessment" of all the reforms to ensure that overall, the benefits outweigh the costs.

The commission would be accountable to Parliament and it should be established in time to produce its first report to coincide with a planned review of automatic enrolment into workplace pensions in 2017, the NAPF said.

Joanne Segars, Chief Executive, NAPF, said: "Ensuring the long term interests of savers, not the short term interests of politicians, are at the heart of pensions policy must be the priority of the next Parliament.

"This last year has been characterised by swathes of legislation that pension schemes now have to implement to a very tight deadline.

"It is vital for the long term interests of pension savers' ultimate retirement outcomes that future changes in pensions policy are carefully thought out and implemented, which is why we need an independent retirement savings commission to focus on the long term and protect the interests of all savers."

The reforms which are due to come into force next April will mean that people aged over 55 will be able to take their pension pot subject to their marginal rate of income tax in that year, rather than the current situation where they are charged 55% tax if they withdraw the whole pot.

They will also be able to use their pension pot like a bank account and withdraw sums in a series of slices, with 25% of each slice being tax-free.

Previously, people approaching retirement have felt forced to use their pension savings to buy an annuity, which provides a guaranteed yearly payout and ensures that that person will not outlive their savings.

But annuities, which are usually a one-off, irreversible decision, have been controversial in recent years due to falling rates and people not always choosing the best deal for their circumstances.